The Definitive Guide to

Value Stream Management

Learn what Value Stream Management is and why it can be a big help to organizations with self-developed software. Read more about its origin, benefits, and metrics.

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Introduction
What is Value Stream Management?
What is value in software engineering?
What are the benefits?
How to measure value streams?
How can a Value Stream Management solution help?
Conclusion

Introduction

With digital transformation on the rise, every company, regardless of the industry, has turned into a software company. It requires companies to react faster to changing customer needs. Software and digital products are the means to achieve that.

Hence even traditional companies now have a strong software development branch to innovate their offering and business models. But to keep up with competition and to generate maximum value, your customers should become a starting point for any transformation.

A successful digital transformation requires ongoing value stream management – optimizing the sequence between production, product development, and delivery to the customer. The latter is the driving force in this equation and determines the actual value of the service or product.

Many enterprises struggle to align business objectives with their IT initiatives and don’t know how to measure the performance and improvements of the delivery of their products.

Read on and find out about the importance of value stream management within any tech-driven company and how you can actively assess the value your software creates for customers with the right metrics and modern value stream management platforms.

What is Value Stream Management?

Value stream management encompasses monitoring, controlling, and improving the value software delivers to your company throughout its entire lifecycle. Value stream includes every activity required to deliver software to your internal or external customers.

Value stream management can be a big help to organizations with self-developed software solutions. And if these solutions keep delivering a high value to the end-user, a high return on investment is inevitable.

Actively measuring current software delivery performance and taking into account the time, cost, or customer experience perspectives helps value stream managers, DevOps teams, and Engineering leaders to better understand:

The context in which they write code
The impact of malfunctions

For example, buggy software that is customer-facing does not only require Dev teams to put in additional efforts to fix it but can also prevent the business to sell its products, inducing churn, or leaving customers with a negative experience.

Making dependencies within the tech stack measurable, understandable, and easily consumable, teams and their leaders get a tool at hand that helps them make informed decisions on where to prioritize and allocate resources.

“Organizations whose businesses rely on software must learn how to balance the relationship between necessary investments in software delivery and the business value these investments bring to the organization.” - Alan Brown, Enterprise software delivery

Working with value streams and measuring software delivery performance instead of simply thinking in silos and looking at features and functionalities in an isolated manner, ultimately helps to focus on “doing the right thing” and enables teams to set their focus in alignment with the overall business strategy.

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Why does it matter?

Value stream management offers tech-driven organizations to measure software performance in a holistic way during all software life-cycle stages. Nowadays, neglecting value stream alignment comes at a high cost – companies lose out on big opportunities that could increase customer satisfaction and ROI.

Value stream alignment creates visibility throughout all processes and makes it easier to spot bottlenecks and other pain points that create unnecessary waste. By taking a step back and looking at the entire value stream, you get to uncover opportunities for improvement and automation. Furthermore, it’s much easier to trace back processes and make sound, data-driven decisions.

Even though DevOps is a great start in the right direction, companies need to optimize their end-to-end software delivery capabilities, so business objectives can be met. To date, value streams are the best way to objectively track and measure the values that are most important to a company and the customers.

History of Value Stream Management

Value stream management and value stream mapping are not new approaches that emerged with the rise of software adoption – in fact, their principles go back to early manufacturing. Taiichi Ohno, the father of the Toyota Production System, developed “Material and Information Flow Mapping” back in 1988 to visually depict all workflows within the production process. Thus, he created a common language for identifying areas of improvement and for eliminating waste.

What was used as a basic tool for a specific industry relying on assembly lines is now utilized by companies around the world who are looking for lean management and transformation of their software delivery.

However, Ohno was not the first one to come up with this idea. In his book, “Installing Efficiency Methods” from 1918, the American organizational theorist and consultant, C.E. Koeppel developed a similar value stream managing approach. And with the rise of the industrial age and the increase of manufacturing, Lean Principles emerged as well as Six Sigma techniques by Motorola engineer Bill Smith.

All of these principles had one thing in common: They were aimed to identify and remove the causes of defects and interruptions in manufacturing and business processes in order to drive business value.

Next, learn about the role of this management approach in the context of DevOps and what the main differences are.

VSM in the context of DevOps

DevOps – the combined practices of software development and IT operations – has fostered a collaborative work environment between those once siloed departments. It has transformed software development and release cycles in a way that highlights efficiency and quick problem-solving. That is why companies implementing DevOps see dramatic improvements when it comes to deploying changes or releasing new software versions.

However, DevOps alone is not enough to manage and maximize the value software can generate as it only covers a part of the value stream.

In DevOps, the focus lies on deployment lead time. This results in an only partially optimized process as it often remains unclear what exact value is derived from major IT investments. And this is where value stream management comes in – it focuses on the end-to-end lead time or “time to value”.

"Implementing DevOps methods, configurations, and tools on an enterprise scale is not trivial or inexpensive. On the other hand, VSM tools provide the data you need to get the most out of your IT investments.” - Cecil 'Gary' Rupp, Driving DevOps with Value Stream Management

With customer-centric value stream management, enterprises actually know what happens between a customer's need or request and production. But in order to see the desired return on IT initiatives, they are advised to use the proper success metrics and performance indicators that will allow them to align delivery with customer needs and expectations.

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What is value in software engineering?

Even though value stream management and lean principles were developed to optimize and streamline complex manufacturing processes, they have proven to be the best methods to measure and track where value is being created in software delivery. After all, a value stream is just a series of activities an organization follows through, to deliver a desired outcome to the customer.

In software engineering, this value stream exists either per product, service, or software application. Flow items are the different units of value that are part of the stream – this could be a new software feature or a bug fix. The goal is to increase the rate these items flow through the stream, so more value can be created in a shorter amount of time.

So, instead of a project-based focus, value stream management helps companies adopt a customer- and product-centric approach. From this macro-perspective, it is much easier to identify weaknesses and develop strategic ways to improve the value stream.

Below, learn about the Gemba walk and how value stream management creates visibility in software development.

Gemba walk

Compared to assembly-line manufacturing, software development has a lot more abstract, intangible processes that are invisible to those who are on the outside, like managers who are not involved in the day-to-day work.

That’s where the Gemba Walk can help. “Gemba” means “actual place” in Japanese and refers to the actual place where the value is actively created. In a Gemba walk, this particular work environment is closely examined to understand how products are built and what the exact challenges are.

Observing various processes in software development can be obscure and confusing to non-IT employees and management, which is why Flow Metrics are used to provide a full real-time insight instead of just a snapshot of what is actually happening during value creation.

Walking to the value helps product owners get closer to the code and technology teams get closer to the customer – this creates mutual understanding and empathy as well as a shared purpose.

Making work tangible

As previously mentioned, the work in software development is rather intangible and therefore remains invisible to those who don’t “live in the process”. In general, there is a lack of agreement in tech-driven enterprises as to what actually flows through the software development process.

When comparing software engineering value streams to automotive value streams, it is also clear why: In the latter case, the number of produced cars serves a clear measure, but how would we define productivity in the world of software?

In order to answer this question, there needs to be a clear definition of what is part of the software value stream. Dr. Mik Kersten who pioneered the integration of development tools with Agile and DevOps determines four flow items that are an integral part of the software development value stream: Feature, Defect, Risk and Debt.

Flow Items explained

Flow Items	Delivers	Description	Examples
Flow ItemsFeatures	DeliversNew business value	DescriptionNew added value to address customer problems	ExamplesFeatures, user stories, requirements
Flow ItemsDefects	DeliversProduct quality and product stability	DescriptionFixes for quality and stability problems affecting customer experience	ExamplesBugs, problems, and incidents
Flow ItemsRisks	DeliversSecurity, governance, and compliance	DescriptionWork to address security, privacy, and compliance issues	ExamplesVulnerability and exposure fixes, legal and regulatory requirements
Flow ItemsDebts	DeliversFuture-proof and up-to-date platform	DescriptionImprovement of software architecture, replacement of software artifacts (framework, library, programming language), and operational procedures	ExamplesTechnical debt, upgrades, architecture, replacement, and process change

Both the Feature and the Defect item are pulled by the customer. So, if a new feature or a defect fix incites the customer to purchase the service or product, they must be part of the value flow. The more invisible flow items Risk and Debt are pulled by risk officers and architects. Managing risk and ensuring compliance as well as reducing technical debt by adjusting or automating the IT infrastructure hugely affect a value stream.

How to create value?

Once they have walked Gemba and determined the flow items in their value stream, companies have to ask themselves what delivering value to customers and thus creating more business value looks like in practice. Below are three ways that help with putting practice into action.

Articulating the product

Before the actual development stage of a product comes the “plan and design” stage where a sales team is capturing the customer needs that are then analyzed and translated into new features. After assessing cost and other resources, UX designers sketch out and test ideas, and managers and owners break down the product into epics and stories.

During this long process, it’s extremely important that all parties involved have excellent communication through an accessible knowledge-sharing network, so the product is tied to the original requirement.

Understanding the code

Using a knowledge-sharing network that omits archaic forms of communication like email threads, spreadsheets, and multiple clunky tools, allows for much smoother product development.

Developers should create sensible code while keeping in mind what the initial request was and what happened in the plan design stage. It’s self-explanatory that understanding the “why” behind a code yields better products that fulfill their intended purpose.

Teaming up with customers

As the customer is at the center of it all, direct communication lines from sales departments to development are key to fostering a deep understanding of why a particular product is being built. That is why an integrated VSM tool is essential for creating the most value.

Knowing what the customer is looking for, developers can get more invested in the idea of creating the right value. This shift from project to the customer and the product in itself is increasing engagement across the entire value stream process, boosting customer satisfaction and revenues.

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What are the benefits of value stream management?

Value stream management offers various benefits to tech-driven companies that are using software to deliver products and services to the customer. With the entire value stream being exposed, it is much easier to spot weaknesses and independencies.

Not only does this foster mutual understanding and empathy across departments. It also facilitates the elimination of waste in the software delivery pipeline and aligns development efforts with business objectives. Here is an overview.

End to end visibility of delivered software and created value
Modern value stream management tools enable visibility by using real-time data. This data is derived from each tool that is part of the software delivery chain. With this end-to-end visibility and an accurate picture of lead and process times, leadership can make better decisions and eliminate waste (see the next benefit).
Identify and eliminate waste within the software delivery process
With low or limited end-to-end visibility, many processes stay in the dark and there is no way of knowing how to improve the efficiency of the involved software delivery processes. In value stream management tools, the data models tracking the flow from the design and planning stage to product realization capture each time stamp and reveal the waste that should be eliminated.
Connect engineering efforts with business outcome
IT silos that are completely removed from business operations and leadership are a thing of the past. Value stream management helps decision-makers connect engineering outcomes with their business goals. The data that is being collected, reveals which IT initiatives and efforts are paying off and which ones need tweaking.

How to measure value streams?

In software development, it’s difficult to measure and track processes that are usually decentralized and spread across various departments.

However, you need to know how to measure each value stream in order to find out how it’s performing and how it affects overall business outcomes.

That’s why many software companies and lean practitioners use DevOps/DORA Metrics and Flow Metrics after they mapped out their value streams. Below, is a brief overview.

DevOps/DORA Metrics

DORA Metrics are metrics developed by the DevOps Research and Assessments team. Its goal was to establish a measuring guide for the outcomes of DevOps initiatives and assess the performance of engineering teams.

Next to other data points, the main four DORA Metrics are defined as follows:

Deployment frequency (DF): Every DevOps team defines success a little differently. In general, top performers aim for continuous or daily deployment.
Lead time for changes: Similar to DF, lead time for changes exposes the pace of software delivery at a company. It captures the time between a code change commit and its deployable state.
Mean time to recover (MTTR): This metric measures the time between an interruption due to deployment or system failure and full recovery.
Change failure rate (CFR): This metric indicates how often a team’s changes or hotfixes lead to failures after the code has been deployed.

Flow Metrics

After adopting DORA Metrics, many teams then integrate Flow metrics that are centered around the flow items that were mentioned earlier: Feature, Defect, Risk and Debt. Below are the standard flow metrics that help you get a better insight into what is actually occurring in the value stream.

Flow Velocity: This metric refers to the number of flow items completed in a certain amount of time. It measures if the value delivery is picking up speed or whether it’s slowing down.
Flow Time: This is used to find out whether the cycle time of an item is getting shorter or longer as it measures the time it takes for a flow item from start to completion.
Flow Efficiency: This metric is great for uncovering waste as it measures the ratio of active time vs. wait time in regards to the entire flow process.
Flow Load: This metric reveals the number of flow items that are part of the process and in progress and can show if a value is under-utilized.
Flow Distribution: This metric looks at the ratio between the four flow items in a defined window of time and helps with the prioritization of particular work processes.

How can a Value Stream Management solution help?

Value stream management tools like LeanIX's VSM are essential for succeeding in managing an organization's software delivery performance and ultimately its value streams.

Through innovative integrations and tools that connect teams, technology, and development processes, organizations achieve the end-to-end visibility that is needed to eliminate waste and maximize the value delivered to their customers by software.

Below is an overview of three features that support a company’s value stream management efforts.

Discovery

The LeanIX solution offers ready-to-use DevOps integrations and low-code custom integrations as well as technology catalogs that are designed to capture and track all important information belonging to a particular software asset. This step is necessary to create the visibility and holistic insight that value stream management is based on.

LeanIX-VSM-Discovery-View

Enablement

Thanks to state-of-the-art integrations, a value stream management platform is able to pull data from each tool or application that is part of the value stream. Through comprehensive dashboards, reports, and flexible dashboards, it’s much easier to gain insights that are up-to-date and reflect the status quo of the current software delivery performance.

LeanIX-VSM-Enablement-View

Measurement and improvement

A value stream management solution lets you create a visual map and flow chart of products, teams, and domains revealing their interdependencies. This makes it easier to identify what kind of impact the various flow items have on each other and ultimately, on the business outcomes.

LeanIX-VSM-Measurement-Improvement-View

Conclusion

The software development and delivery landscape are transforming rapidly, creating new opportunities and challenges for companies that want to stay ahead of the curve with cutting-edge software and cloud-based applications.

However, using the latest technologies doesn’t mean that desired business objectives are automatically being met. Value stream managers, lean practitioners, and DevOps paired with value stream management and the right value stream management tool can ensure that engineering efforts are steered effectively and efficiently by creating end-to-end visibility and accountability at the same time.

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Answers to frequently asked questions on Value Stream Management

What is value stream management?: Value stream management encompasses monitoring, controlling, and improving the value software delivers to your company throughout its entire lifecycle.
What is DevOps value stream management?: Value stream management is measuring current software delivery performance and taking into account the time, cost, or customer experience to better understand the context in which they write code and the impact of malfunctions.
What is the meaning of value stream?: A value stream is just a series of activities an organization follows through, to deliver a desired outcome to the customer, either per product, service, or software application.